Incremental Borrowing Rate

Home » CMA Glossary Term » Financial Statements and Reporting » Incremental Borrowing Rate

The incremental borrowing rate is defined as the interest rate a lessee would have to pay to borrow funds necessary to obtain an asset of similar value to the right-of-use asset in a lease transaction. This rate reflects the lessee’s credit risk and the lease term. It is crucial for calculating the present value of lease liabilities under IFRS 16 and ASC 842.

CMA Exam Academy 16-Week Accelerator Program